Channel Coordination with a Risk-Neutral Supplier and a Downside-Risk-Averse Retailer

Abstract:   We investigate how a supply chain involving a risk-neutral supplier and a downside-risk-averse retailer can be coordinated with a supply contract. We show that the standard buy-back or revenue-sharing contracts may not coordinate such a channel.  Using a definition of coordination of supply chains proposed earlier by the authors, we design a risk-sharing contract that offers the desired downside protection to the retailer, provides respective reservation profits to the agents, and accomplishes channel coordination.